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Investment Classification Guide

Entity Z acquires an investment for P100,000 with P10,000 in transaction costs. The document illustrates the initial measurement and subsequent measurement of the investment under different classifications: Financial Asset Held for Trading, Held-to-Maturity Investments, and Available-for-Sale Financial Assets. In the subsequent measurement illustration, assuming the investment is stocks, the fair value increased to P120,000. For Financial Asset Held for Trading, a gain of P20,000 is recognized from the change in fair value. For Available-for-Sale Financial Assets, an unrealized gain of P10,000 is recognized from the change in fair value.

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ALMA MORENA
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125 views2 pages

Investment Classification Guide

Entity Z acquires an investment for P100,000 with P10,000 in transaction costs. The document illustrates the initial measurement and subsequent measurement of the investment under different classifications: Financial Asset Held for Trading, Held-to-Maturity Investments, and Available-for-Sale Financial Assets. In the subsequent measurement illustration, assuming the investment is stocks, the fair value increased to P120,000. For Financial Asset Held for Trading, a gain of P20,000 is recognized from the change in fair value. For Available-for-Sale Financial Assets, an unrealized gain of P10,000 is recognized from the change in fair value.

Uploaded by

ALMA MORENA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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ILLUSTRATION 1: Initial measurement

Entity Z acquires an investment for P100,000. Transaction costs amount to P10,000.

Case 1: The investment is classified as Financial Asset Held for Trading.

Date Financial Assets Held for Trading 100,000


Other Financial Charges 10,000
Cash in Bank – Local Currency, Bangko
110,000
Sentral ng Pilipinas

Case 2: The investment is classified as Held-to-maturity Investments.

Date Investments in Treasury Bills – Local 110,000


Cash in Bank – Local Currency, Bangko
110,000
Sentral ng Pilipinas

Case 3: The investment is classified as Available-for-sale Financial Assets.

Date Investments in Stocks (or Bonds) 110,000


Cash in Bank – Local Currency, Bangko
110,000
Sentral ng Pilipinas

ILLUSTRATION 2: Subsequent measurement

Assume the investment in Illustration 1 is investment in stocks. The fair value at the end
of the period is P120,00.

Case 1: The investment is classified as Financial Asset Held for Trading.

Date Financial Assets Held for Trading 20,000


Gain from Changes in Fair Value of
Financial 20,000
Instruments

Case 2: The investment is classified as Available-for-sale Financial Assets.

Date Investments in Stocks 10,000


Unrealized Gain/(Loss) from Changes in
Fair 10,000
Value of Financial Assets

 Interest income from debt instruments, other than those which are classified as
financial asset at fair value through surplus or deficit, is recognized using the
effective interest method.
 If the investment is in the form of bonds and is classified as available-for-sale
financial assets, the unrealized gain (loss) would have been computed as the
difference between the fair value at year-end and the carrying amount adjusted
for the amortization of bond discount or premium.
 Only debt securities can be classified as held-to-maturity investments. Held-to-
maturity investments are subsequently measured at amortized cost, and
therefore, changes in fair value are ignored.

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